CGT - update

Latest Any Answers

Parents purchase BTL property for £103k in 2005, no mortgage. Gift it to (adult) child in 2012 (MV=c£115k). Child already home owner. Child wants to sell it to raise capital for their new business in 2016. Parents say 'Don't do that, here's the cash you need instead". Property title deeds remain in child's name but they all consider it to be back with the parents (in clients words "so, technically, the house was theirs again"!). Parents retain their own home from pre-2005 to current day.

Question from client: Should I a) sell it to my parents & let them deal with it all or b) sell it to the 3rd party then transfer the money to my parents?

My thoughts (well, ones that can be communicated to the client):

a) sell to parents:

i. Parents would incur 3% SDLT charge.

ii. Sale should be at £nil to avoid CGT for my client

iii. Parents would have capital gain of £121k

b) sell directly to 3rd party:

i. Can they use the £103k tax base from their parents' original purchase?

ii. CGT on £7k (£121k-£103k less £11k threshold) at 18%

iii. Gift of property remains on the IHT 7 year timeline.

(Let's ignore anything to do with rental income for now - from the lack of tax returns I can only presume that the property has been empty all of these years.)

1. Am I right with point Bi?

2. Is there anything else that I'm missing?

Thanks all.

*** UPDATE****

New email from client (daughter) "What I didn't realise is that we signed a declaration of trust when they transferred the property to my name, which names my father as the beneficial owner throughout. So it appears that its not an issue after all."

She is probably going to repay the 117k and then, after a couple of days contemplation, will probably decide that, say thank you for being good parents, she feels generous and that a gift would be a nice thing to do.

My point is that as an advisor you can never suggest that. If you do, you should hang your head in shame. And recognise that the reason that more and more anti-avoidance - drawn so widely that many legitimate (you know what I mean) activities are within scope - is precisely because this kind of feeble relabelling ("it's not interest, guv, it's a gift, honest") is what passes for tax advice in the minds of too many accountants.

This is never something that I would put in an advisory letter, or any written form for that matter.

What’s more likely is that I would state the rules in an email (assume only £117k repaid, no gain on loan, no interest taxable - just worded better), then have a conversation, not telling her what to do but rather lead her down the garden path. Up to her if she drinks the water. (And yes I know I’m mixing sayings).

I do get your point, but (@Manchester_man) I’m clearly not the only one who would go down this route.

The client pays my bills not HMRC. There was no intention for there to be loan interest in this (global) transaction. Fair enough that you could argue / would concede that (taken as a whole), the parents would have had a capital gain of £121k-£103k =£18k. Owned jointly, so below the threshold, so no tax liability. I agree that technically this isn’t what has happened, but in practical/intended terms ...

To clarify, I’m not saying that giving professional advice to evade tax is ok.

What I’m saying is that if I state the rules to my client, describing any assumptions that I’m making then they tell provide evidence of a particular transactional history, I am going to treat that as read.

You may say it’s wrong, I say it’s a fine line that I make sure I stay on the right side of.

My clients put the roof over my family’s head, not HMRC.

Others in this thread seem to agree with this position- a straw poll on AW would I’m sure show that I’m far from the only one with this mindset.

See post by Portia Nina Levin 23rd Feb 2018 16:12 .
Whatever they want to think happened, it didn't. Should the parents need any extra money the child can lend it to them - documented this time -why increase their estate unnecessarily - and can if they wish fund this loan by selling the BTL. CGT 6k less costs of sale

New email from client (daughter) "What I didn't realise is that we signed a declaration of trust when they transferred the property to my name, which names my father as the beneficial owner throughout. So it appears that its not an issue after all."

The "signed a declaration of trust" presumably contradicts the "transferred the property to my name"?

The "signed a declaration of trust" presumably contradicts the "transferred the property to my name"?

But if that's what happened, that's what happened. Would I be wide of the mark if I supposed that your client (the daughter) has in the meantime been declaring the income? Of course it was incorrect to do so, if it was not hers to declare.